Buyer Beware: Oregon Courts Will Enforce Anti-Assignment Provisions in Insurance Policies

Insurance policies often include anti-assignment provisions that prohibit the insured from assigning its rights under the policy.  In a recent decision by the Oregon Court of Appeals, a claimant learned the hard way that Oregon courts will not hesitate to enforce an anti-assignment provision in an insurance policy to invalidate an insured’s assignment of its claim. 

The case, Clinton Condominiums Owners Association v. Truck Insurance Exchange, 282 Or. App. 484, 385 P.3d 1279 (2016), involved underlying claims brought by Clinton Condominiums Owners Association (“CCOA”) against We Do Windows, a window washing contractor.  CCOA had hired We Do Windows to do work at its condominium building and later asserted claims against We Do Windows for negligence and breach of contract.  We Do Windows tendered the claims to its insurer, Truck Insurance Exchange (“TIE”), which denied the tender.

CCOA and We Do Windows ultimately entered into a settlement agreement that included an assignment of We Do Windows’ claims against TIE.  CCOA—as the assignee of We Do Windows—then brought suit against TIE for breach of contract and breach of the covenant of good faith and fair dealing. 

The Multnomah County Circuit Court dismissed CCOA’s claims on summary judgment, and the Court of Appeals affirmed.  The reason for dismissal: the policies at issue contained anti-assignment provisions that prohibited We Do Windows from transferring its “rights and duties” under the policies without TIE’s written consent and TIE had not consented. 

In an effort to avoid the anti-assignment language, CCOA attempted to rely on Or. Rev. Stat. § 31.825, titled “[a]ssignment of cause of action against insurer,” which provides that an insured “against whom a judgment has been rendered may assign any cause of action that defendant has against the defendant’s insurer as a result of the judgment to the plaintiff in whose favor the judgment has been entered.”  Or. Rev. Stat. § 31.825 (emphasis added).  CCOA argued that Or. Rev. Stat. § 31.825 provided a statutory right of assignment that invalidated the anti-assignment provision in the policy.  Both the Circuit Court and the Court of Appeals disagreed, holding that the legislature intended to create a right for an insured defendant to assign claims against an insurer only after a judgment is entered—not when the parties reach a pre-trial settlement and no judgment is entered.

The court’s decision enforcing the anti-assignment provision appears to be a departure from the rule applied by the majority of states, which generally hold that anti-assignment clauses are not enforceable when the insured seeks to make an assignment of rights after an insured occurrence takes place.  The rationale for the majority rule is that a prohibition on “post-loss” assignments violates public policy because the purpose of an anti-assignment clause—protecting the insurer from unforeseen risk that could arise if the policy was assigned to an entity that the insurer did not want to insure—is not implicated when an act giving rise to a claim has already occurred and the insured merely seeks to assign that claim to a third person.  Courts following the majority rule choose to protect public policy considerations over strictly enforcing the agreement between insurer and insured.

Clinton Condominiums, on the other hand, more closely adheres to the rule followed by a minority of jurisdictions, which instead favor applying the plain meaning of contractual provisions over protecting public policy considerations. 

Although at first blush the Court of Appeals’ decision in Clinton Condominiums appears to foreclose an assignment of claims against an insurer as part of a pre-trial settlement whenever a policy contains anti-assignment language, that may not necessarily be the case.  In determining that Or. Rev. Stat. § 31.825 applies only to claims that “result” from a judgment, the Court of Appeals cited to the Oregon Supreme Court’s recent decision in Brownstone Homes Condominium Association v. Brownstone Forest Heights, LLC, 358 Or. 223, 363 P.3d 467 (2015).  In that case, the Supreme Court invalidated the “Stubblefield rule,” which had prohibited an insured from assigning claims against its insurer as part of a settlement that included entry of a stipulated judgment in exchange for a covenant not to sue.  Thus, it is possible that the Court of Appeals may have reached a different result if CCOA and We Do Windows had entered into a stipulated judgment as part of their settlement of claims. 

In any case, the lesson of the Clinton Condominiums decision should cause any Oregon claimant—whether an individual, a designer, a contractor, a subcontractor, an owner, or anyone else—to closely review the relevant policies whenever an insured defendant proposes assigning claims against its insurer as part of a settlement. 

"Buyer Beware: Oregon Courts Will Enforce Anti-Assignment Provisions in Insurance Policies" was originally published by the Daily Journal of Commerce on April 21, 2017.